The market's revolving leadership doors

07 May 2013, 16:08

Directors continue to be replaced at the top of listed companies. Although the stockmarket has this year been particularly strong, investors are having to contend with an unprecedented change in leadership among quoted stocks. Today alone sees seven directorate changes, so is this a good or a bad sign?

Most changes are down to shareholder – and most probably board – frustration that the business has stalled, made mistakes or suffered a weak share price. Someone has to pay for disappointment and that tends to be the chief executive officer (CEO) or finance director (FD). Management changes are therefore taken as a positive sign in the hope that the business will be re-energised.

Leaving amid disagreement over strategy tends to be a bad sign, as you cannot assume that the remaining directors are making the correct decisions. Being poached to work for a competitor is simply bad luck for shareholders, but their money can easily follow the management if they are moving to another quoted stock.

The market doesn't seem too fussed by news today that the long-serving CEO of Diageo (DGE) is to stop running the business from July, with the shares flat at £19.71. Paul Walsh has been the boss for 13 years and leaves at a time when the drinks giant's organic growth agenda looks 'a bit less sprightly', according to Investec analyst Martin Deboo.

While his replacement, chief operating officer Ivan Menezes, was fully expected to become the boss at some point, Walsh will be missed by many. Deboo notes that £100 invested in Diageo when Walsh became CEO in September 2000 is now worth £538, relative to only £148 for the FTSE 100.

The analyst says Menezes will have a 'full in-tray' when he starts as CEO at Diageo. 'We expect organic growth to be top of the agenda for now. Beyond that, the challenge for us is that of unlocking value strategically, using the still-unleveraged balance sheet. Exiting brewing and increasing focus on spirits continues to look compelling to us.'

More perplexing is why Marcus Engelbrecht has suddenly left as CEO of gold producer Archipelago Resources (AR.:AIM), down 0.5% at 51.5p. The company is one of the few gold miners to deliver on production guidance, generate excellent exploration results and keep costs under control. No reason was given for his departure; the company merely said that he would be replaced by chief financial officer Colin Sutherland.

Engelbrecht was tasked with growing Archipelago through acquisitions but has not made a single purchase since becoming CEO in August 2011. One could assume that he has been prudent in the search to expand and avoided the mistakes of most quoted miners in buying companies for the sake of growth – ignoring valuation and asset quality.

Kate Craig, analyst at Liberum Capital – which is also house broker to Archipelago – says one cannot rule out Engelbrecht being lured to a rival business, given that he is one of the few gold mining bosses to deliver operationally and through exploration. You could also wonder if Engelbrecht was bored at the company if he had failed to find suitable acquisitions, given that it is a one-asset business.

Profit warnings can be one of the most popular reasons for binning the management. This was evidenced last year by CEO departures at Halfords (HFD) and May Gurney (MAYG:AIM); and more recently by FD changes at Volex (VLX) and Snoozebox (ZZZ:AIM).

Fulcrum Utility Services (FCRM:AIM) has today replaced its CEO, John Spellman, following March's profit warning. Alas, the service group has only found an interim replacement, so the shares are unmoved at 8.75p.

A boardroom spat is understood to be the motivation behind senior executive Vyvienne Wade leaving insurance broker Jardine Lloyd Thompson (JLT). A trade press article alleged a clash between Wade and CEO Dominic Burke surrounding her previous role as boss of the Latin American operations. She was sidelined into the new role of 'European chairman' in March with chief operating officer Mike Methley adding Wade's previous responsibility to his role. Today's announcement says she leaves the business with immediate effect after 26 years' service.

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